Hotels

A market tax law for accommodation but not for the hotel industry?

As more states expand or clarify their market facilitator laws, it may become more difficult for market facilitators and sellers to know what taxes they are responsible for.

For example, although Kansas requires Marketplace Facilitators to collect and remit tax on third-party lodging, Marketplaces are not responsible for tax due on facilitated sales of hotel lodging. It seems like an odd place to draw a line in the sand, but Kansas isn’t alone.

Kansas, on the other hand, distinguishes hotel rooms from other room types. Kansas Senate Bill 50 (2021) established an economic nexus threshold for distance sellers and a tax collection requirement for market facilitators, effective July 1, 2021.

Clause 1 of the bill specifies that “marketplace facilitator” includes “a person who provides a platform through which unaffiliated third parties offer to rent and collect consideration from occupants for the rental, for a period of less than 29 consecutive days, of rooms, lodgings, dwellings, houses, apartments, cabins or residential dwelling units which are intended for use as a room, dwelling or bedroom by one person or by two or more persons maintaining a common household, to the exclusion of all others.

You might think that “rooms, lodgings, accommodations” would include hotels and motels – but no. Section 1 continues: “A person is not a market facilitator with respect to the sale or charge of rooms, lodgings or dormitories, if such rooms, lodgings or dormitories are provided by a hotel. (Emphasis added.)

Kansas Department of Revenue Notice 21-24 (January 7, 2022) drives the point home. A person or entity that facilitates the sale, rental or charge of hotel rooms “is not a market facilitator” (emphasis added) and therefore “will not collect, report or pay no tax on sales or passing guests on behalf of the hotel (the seller).” The hotel (seller) must collect, report and remit all applicable taxes themselves.

In contrast, “a person or entity that facilitates the sale, rental or billing of rooms that are not hotel rooms is a market facilitator” (it is theirs) and is therefore responsible for collecting , remittance and reporting of tax due on sales, rentals, or charges for “rooms that are not hotel rooms”. These marketplaces are also responsible for collecting and remitting any taxes due on additional fees, such as pet fees or no-show fees.

So, services like Airbnb, Vrbo, and similar businesses are tax-responsible market facilitators in Kansas, but Expedia, Hotels.com, and similar businesses are not.

Note: Unless they have a physical presence in the state, market facilitators are only liable for Kansas applicable taxes if their sales in Kansas meet or exceed the $100,000 economic nexus threshold of the l ‘State of the Sunflower. Market facilitators must include both direct and third-party sales when calculating the threshold and begin collecting and remitting the tax “as soon as they cross the threshold” (although they have up to 30 days after crossing the threshold to register).

Although remote markets selling below the $100,000 threshold are not required to collect and remit applicable Kansas taxes, the Department of Revenue encourages them to do so. Additional information can be found in Notice 21-24 and Notice 21-14.

West Virginia’s Market Facilitators Act applies to hotel occupancy tax beginning January 2022. West Virginia’s market requirement may be somewhat broader than Kansas’s due to the enactment of Senate Bill 270 (2021) – but just a little.

Effective January 1, 2022, Market Facilitators meeting West Virginia’s Economic Nexus Threshold must collect and remit Hotel Resort Tax on behalf of hotels or hotel operators. The term “hotel” includes, but is not limited to, “boarding houses, hotels, motels, inns, courts, condominiums, lodges, chalets and tourist residences”, as well as “state, county and city parks offering lodging. ”

The inclusion of “tourist residences” suggests that the collection requirement extends to accommodations such as those facilitated by Airbnb and Vrbo. However, “hotel” does not include “any facility providing less than three bedrooms in private homes, not exceeding a total of 10 days in a calendar year, not camping pitches for tents, caravans or camping -cars”. Further, “hotel room” does not include rooms rented for 30 days or more or on a monthly basis, or charges for hotel banquet or meeting facilities.

This requirement complicates compliance for facilitators because, once collected, the hotel resort tax must be remitted to counties and municipalities rather than the state taxing authority. The West Virginia State Department of Taxation does not administer hotel tax.

What future for accommodation markets and tax collection? Applying Market Facilitator collection requirements to accommodations is surprisingly common in some states, according to Oliver Hoare, accommodations general manager at Avalara. “When a jurisdiction covers a law of the market, there is regularly a parallel accommodation-specific bill.”

For example:

Georgia

Georgia’s Market Facilitators Act required markets to collect applicable state sales and use tax on behalf of hotels and short-term rental guests beginning April 1, 2020, as well as hotel fees. State hotel-motel applicable from July 1, 2021.

House Bill 317 (effective July 1, 2021) revised the definition of “innkeeper” to include market facilitators and also extended hotel-motel fees to short-term rentals. Prior to July 1, 2021, the state hotel-motel fee only applied to a building with five or more commonly owned hotel rooms.

Applicable local excise taxes on accommodation generally remain the responsibility of the guest rental owners, not the market. Additional details can be found in Department of Revenue FET-2021-01 and SUT-2018-02.

Indiana

Indiana has required Marketplace Facilitators to collect and remit applicable taxes on short-term rentals and other accommodations since July 1, 2019. Marketplaces are responsible for applicable County Innkeeper taxes and food and beverage taxes. beverages plus applicable sales and use taxes. Additional information is available from the Indiana Department of Revenue.

Virginia

Under Virginia’s Market Facilitators Act, “retail sale” specifically includes “the sale or charge for any room or rooms, lodgings or lodgings provided to passengers for less than 90 consecutive days by any hotel, motel , inn, tourist camp, tourist hut, campgrounds, club or any other place in which rooms, accommodation, space or lodgings are regularly provided to transients for consideration”.

The Virginia Department of Taxation recalls that “lodging provider” includes any person or business “providing similar short-term accommodations” such as hotels, motels, inns, etc. Accommodation intermediaries (i.e. companies that handle reservations for the accommodation provider) are responsible for collecting and remitting applicable taxes.

New Jersey

States where market enabler laws do not address accommodations will likely introduce legislation within the next two years. Namely, New Jersey Senate Bill 505 seeks to extend the Garden State Market Facilitator collection requirement to accommodations “accepted through a means provided by the Market or a travel agency, that payment for accommodation is made by a means provided by the market or travel agency.” Current law states that payment must be made through a market or travel agency for the market facilitator provision to apply. If signed by Governor Phil Murphy, SB 505 will take effect immediately.

new York

Governor Kathy Hochul would like to extend the sales tax to short-term rentals. According to its proposed budget, any vacation rental marketplace provider that facilitates occupancy of a vacation rental would be responsible for collecting and remitting applicable state and local sales taxes, as well as the unit fee of the hotel in New York.

New market regulations notwithstanding, Hoare explains, that’s only half the story, as large hosting space markets typically have voluntary compliance agreements (VCAs). Pam Knudsen, Senior Director of Compliance Services at Avalara, adds that with VCAs in place, market forces are unlikely to have any impact on hosting markets.

Still, Scott Peterson, vice president of government relations at Avalara, suspects that most states would believe changing their laws would nullify an ACV. In other words, a legislative change could potentially undermine a VCA specifying that the seller of the marketplace is liable for the tax.